With the push for hydrogen as a clean source of energy gathering pace in Europe, one of the region’s biggest utilities cautioned that it’ll be another decade before the fuel is profitable.
"It will take 10 to 15 years until this business can yield decent results," Anja-Isabel Dotzenrath, chief executive officer of RWE AG’s renewables unit, said in an interview. "However, it’s an attractive long-term growth area for RWE."
While green hydrogen – made from renewable power sources – is increasingly seen as one of the best ways to reduce emissions from industry and transportation, production costs are still double that of making the fuel from natural gas, according to BloombergNEF.
Those costs are forecast to fall as hydrogen plays a key part in the European Union’s Green Deal and Germany has pledged to invest 9 billion euros (USD 11 billion) in local green hydrogen production. That political support is necessary for the technology to take off, Dotzenrath said.
For its part, RWE is including hydrogen in its strategy to exit coal and focus on low-carbon energy. While gains from other renewables such as wind and solar are already boosting the German utility’s earnings, hydrogen is seen as a long-term bet, Dotzenrath said.
RWE announced in June plans to supply hydrogen to steel maker Thyssenkrupp AG, and to promote the use of the fuel at its planned liquefied natural gas terminal in Germany. The utility is also considering building a 100-megawatt power-to-hydrogen plant in the Netherlands.
RWE sees opportunities across the whole future hydrogen supply chain. Besides supplying green electricity, it has the know-how to build its own hydrogen production facilities and the capacity to store the fuel. Converting gas-fired power plants to receive hydrogen is also in the company’s plans.
"Subsidies and carbon taxes are required for the sector to scale," said Antoine Vagneur-Jones, an analyst at BNEF’s energy transition policy team for Europe, Middle East and Africa. "We will have to see how ambitious policy support is before predicting expected company returns."
The utility’s shift to renewables also marks an attempt to boost its green credentials with investors increasingly wary of its large-scale coal operations that include more than 10 gigawatts of generation capacity from plants burning lignite, the dirtiest form of the fuel. Germany plans to quit coal-fired power by 2038.
RWE has earmarked about 5 billion euros by 2022 to increase its renewables portfolio by 13 gigawatts in order to become carbon-neutral by 2040.
"There are certain investment funds struggling to deal with RWE as a coal-plant operator," said Dotzenrath. "We try to be clear on our strategy, as 85 percent of our investments are directed to renewables. Isn’t it much more important to see the direction a company is heading in, than looking at the status quo?"